When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the NanJing Pharmaceutical Company Limited (SHSE:600713) share price is up 26% in the last five years, that's less than the market return. Zooming in, the stock is actually down 3.0% in the last year.
Since the stock has added CN¥406m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
Check out our latest analysis for NanJing Pharmaceutical
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During five years of share price growth, NanJing Pharmaceutical achieved compound earnings per share (EPS) growth of 10% per year. The EPS growth is more impressive than the yearly share price gain of 5% over the same period. So one could conclude that the broader market has become more cautious towards the stock.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Dive deeper into NanJing Pharmaceutical's key metrics by checking this interactive graph of NanJing Pharmaceutical's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, NanJing Pharmaceutical's TSR for the last 5 years was 42%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While it's never nice to take a loss, NanJing Pharmaceutical shareholders can take comfort that , including dividends,their trailing twelve month loss of 0.6% wasn't as bad as the market loss of around 7.7%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 7% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand NanJing Pharmaceutical better, we need to consider many other factors. For example, we've discovered 2 warning signs for NanJing Pharmaceutical (1 is concerning!) that you should be aware of before investing here.
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.